The European Commission (EC) said on November 25 2014 that it had decided that liquidity measures granted by Bulgaria in favour of First Investment Bank (FIB) in Bulgaria were in line with EU state aid rules.
The EC said that the measures taken by Bulgaria – in response to a run on the bank triggered by an online smear campaign – were necessary to preserve the financial stability of the Bulgarian economy and financial system.
Furthermore, FIB’s restructuring plan will ensure that the bank continues to be viable in the long-term without unduly distorting competition in the EU’s single market, the EC said.
When the bank run happened, soon after central Bulgarian National Bank put deeply troubled Corporate Commercial Bank under special supervision, FIB paid out a significant amount to depositors before closing temporarily in the early afternoon of June 27 to replenish the liquidity in the branches and ATMs.
European Competitition Policy Commissioner Margrethe Vestager said: “I believe that today’s decision will strengthen public confidence in First Investment Bank.
“The bank presented a sound restructuring plan and a list of commitments, which will restore its liquidity and ensure its long-term viability without unduly distorting competition.”
Following the bank run in June 2014, Bulgaria granted liquidity support to FIB in the form of a state deposit of 1.2 billion leva (about 0.6 billion euro), as part of a Bulgarian liquidity scheme approved by the EC.
Due to Bulgarian Treasury constraints at the time, this deposit had a short maturity of five months expiring on November 28 2014.
Bulgaria has now applied for an extension of the state deposit of 900 million leva (about 460 million euro) by a maximum of 18 months (part of the deposit will be repaid within 12 months already).
The EC said that it had found that the liquidity support for FIB was linked to the on-going market consequences of the liquidity crisis that occurred in Bulgaria in June and July 2014, and were not due to a structural problem of the bank.
Full repayment of the deposit now could destabilise both the bank and the Bulgarian financial system.
“The Commission has therefore concluded that the extension until May 28 2016 of liquidity support of 900 million leva provided to FIB was in line with itsCommunication on State aid for banks as well as with the tightened requirements of the 2013 Banking Communication”.
In line with the conditions to benefit from the Bulgarian liquidity scheme, FIB notified a restructuring plan on November 12 2014. Under the plan FIB has committed to repay the liquidity on predefined dates.
The EC noted that the Bulgarian authorities had provided a set of commitments to restore FIB’s liquidity, improve its corporate governance structure and risk management policies.
To limit any distortions of competition brought about by the aid Bulgaria has also committed to several behavioural constraints during the restructuring period, among others that FIB will not pay out dividends, will not engage in aggressive commercial practices nor undertake any acquisitions.
An independent trustee will monitor the implementation of the restructuring plan and provide regular reports to the Commission, the EC said.